The Mistake the Financial World Makes About Money

Brought to you by the EveryDollar app. Start budgeting for free today. Austin, are you with me? Yep, can you hear me? Yes, sir. How can we help? I hope you're both are doing well today. So I recently, probably within the last few weeks, stumbled upon your content, and I'm just trying to wrap my head around, I have a 6% salary match, 401k, and I'm trying to wrap my head around foregoing that and putting in straight into debt. And I was looking for an explanation. That's a great question. That means you're being very thoughtful about all of this. Very well done. So what do you do for a living? So I am actually a purchasing manager for a mine. Okay. And so you have a degree in business, possibly? Yes. Okay, good. I thought so. So because you're good at seeing the math thing right in front of you and going, well, that seems dumb. So here's a couple of things that we discovered. And I honestly doing this for 30 years, 25 years ago, I was backing into some of these ideas because I come from the same academic background, but back when the dinosaurs roamed the earth that you came from, okay? And so my first tendency is to nerd out and fix everything with math. But I figured out in personal finance that the data of best practices among millionaires doesn't necessarily follow math all the time. In other words, personal finance is more personal than it is finance. It's more behavior than it is math. And so what we've discovered over the decades of doing this is that, in other words, here's an example. The power of exclusively focusing all of your money energy, your arithmetic energy on one goal for a short period of time supersedes the employer match. The power of focus, although that's a little bit nebulous and hard to put a math figure too, we've proven that over a decade, getting clear of consumer debt very, very quickly increases the probability that you actually do it, number one. But number two, it gets you out of debt and frees up then your most powerful wealth building tool, which is your income. When you bifurcate your focuses, meaning you spread them out, when you spread out light, it merely lights a room. When you focus it, you can do surgery or manufacture things with it called a laser. And what we're doing here is for a short period of time, not an extended period of time, the theory doesn't stand up and the hypothesis doesn't stand up over a long period of time, but for three years or less, if you forgo a match and forgo all investing, and in lieu of that, they'll have this tremendous emotion and psychological focus on singular goal of becoming debt free, and then you stay out of debt for the rest of your life, you not only get the match, you get to max out all of these retirements. And it ends up being, 15 years later, the shortest path to becoming a millionaire. Although the short term math of missing out on that match, for someone like you Austin or me that was trained in Nerdville, it feels blasphemous, doesn't it? I understand what you're saying. I feel like I'm stepping over dimes to pick up pennies almost. When you take the match, you are. Yeah. I get what you're saying. It's better to direct my approach towards one thing as opposed to try and spread my avenues out, which hasn't worked for the past however many years I've been going at this. Yeah. Let me give you another example, because it's a great discussion for everyone to listen in on this conversation, because this comes up a lot. It's a real valid question and a valid discussion. But here's the other thing. If you don't get out of debt, and you don't change your mindset about debt, and you languish in consumer debt for 10 years, because simultaneously you're trying to invest, then what you've done is you've completely disabled the wealth building mechanism. And so by simply increasing the probability of becoming and staying debt free, by shortening the term, you've increased the probability of wealth dramatically. In other words, you can't half but do the get out of debt and half but do the investing thing at the same time and ever get this right. You never get clear of it. That's what ends up happening. And so, but man, I get tripped up on the math thing. Here's another, the debt snowball versus I was on a podcast the other day with a young lady in our space, Erica, very smart lady. And she used the debt avalanche to pay off, she's a lawyer, pay off her law school debt. And she was talking to me about that. I said, yeah, but you're a highly disciplined, valedictorian law student, okay? You know, you're an unusual human being. Most of us are normal human beings. We have to see the feedback loop of getting the little one paid off and sensing some success and traction, which keeps me plugged in. The psychological feedback loop supersedes the math change. And here's the thing. The probability of completing the debt avalanche is one-tenth the probability of completing the debt snowball. Yes. In other words, nine out of 10 people that start the debt snowball complete it, one out of 10 on the avalanche complete it, or whatever the number is. But the completion probability is not figured into the stupid math equation when someone says, oh, you should pay off the highest interest rate first. I use the debt avalanche, which means you've been on TikTok, not in reality. That's what that means. And so, you know, again, behavior trumps math when you do it on the short term because our behaviors are what caused the debt in the first place. Yeah, I agree. I mean, when I look at it, I think about it, if you look at it as like a football field, right? And let's say debt's in the end zone. If you run straight, you're getting there faster. But if you zigzag a yard here and then zigzag a yard there, and then I'm going to put five over here on this one. It takes you forever, forever to get to the end zone. That's exactly right. Yeah. Running it. Run it straight up the middle. Yeah. All the way. And take the yardage you can get. Take it. And then play the next play. That's right. And play the next play. Just straight down the middle. Run it up the gut. That's exactly what we're talking about. But the other thing that we don't, even us math nerds, because this, you know, I've been teaching it based on behavior for 25, almost 30 years. So I understand it. I believe it. And I've got 10 million people that have done it. That's right. I've got the proof text that I'm right, you know. But it still messes with my brain. That's funny. It didn't. I'll be honest with you. That was the one thing that didn't mess with my brain much. You came out of the music background, the artist background. You just went, this is how to do it. Do it. Yeah. That is true. There's one way to play that song. Yeah. And this is the way. It's not a song. If you play it two ways, it's a different song. That is true. You know, I mean. Yeah. And so this is, but the math thing is you cannot, and it's the mistake that the financial world has made. All of the financial planning world and all of the investing world and all of the insurance world, they try to do everything based exclusively on math in a behavior based world. Yeah. They forget about mindset. They forget about behavior. If we were only doing math, no one would have credit card debt. Facts. It's mathematically absurd. If we were only doing math, no one would borrow $250,000 to get a degree in left-handed puppetry. Come on, Dave. I know that's right. If we were only doing math. But this is not about math. No one would go into debt to go to a college campus because they have a good football team. Isn't that funny, Dave? How the math matters. Until it doesn't matter. Right. When we don't want it to matter because we get something, it doesn't matter. But then when it's like, wait, if it's in my favor. If we were doing math, we wouldn't buy a car that has a toxic plastic smell in it called new car smell and watch the depreciation happen when we drive it off the lot. That's right. When you hear that sound, when you go off the lot, boom, boom, when you break the curb, that was the sound of $10,000 leaving your net worth. But if we were doing math, we would never do that. No. But we smell the toxic smell and go, oh my God, this is wonderful. Smell the leather. No, it's not leather. It's carcinogens. You're getting cancer right now. I'm just, oh my God, unbelievable. But yeah, I mean, if we were doing math, we wouldn't do almost anything that we stupid human beings do out there. Austin, that was a great question. You're awesome. Thank you for asking that question. But the answer is don't solve a behavior-based problem with a math-based solution. Ding ding.